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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Or
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission file Number: 2-88927
FIRST KEYSTONE CORPORATION
(Exact name of registrant as specified in its Charter)
PENNSYLVANIA 23-2249083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 West Front Street, 18603
Berwick, Pennsylvania (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (717) 752-3671
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, par value $2.00 per share
Indicate by check mark whether the Registrant (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No______
Indicate by check mark if there is no disclosure of delinquent
filers in response to Item 405 of Regulation S-K contained in this
form, and no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
on the Registrant based on the closing price as of March
17, 2000, was approximately $44,636,280.
The number of shares outstanding of the issuer's Common Stock, as
of March 17, 2000, was 2,833,727 shares of Common Stock, par value
$2.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1999 definitive Proxy Statement are
incorporated by reference in Part III of this Annual Report. In
addition, portions of the Annual Report to stockholders of the
Registrant for the year ended December 31, 1999, are incorporated by
reference in Part II of this Annual Report.
FIRST KEYSTONE CORPORATION
FORM 10-K
Table of Contents
Part I Page
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a
Vote of Security Holders Not Applicable
Part II
Item 5. Market for Registrant's Common
Equity and Related Stockholder
Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and
Analysis of Financial
Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative
Disclosure about Market Risk 12
Item 8. Financial Statements and
Supplementary Data 12
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure Not Applicable
Part III
Item 10. Directors and Executive Officers
of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain
Beneficial Owners and Management 13
Item 13. Certain Relationships and Related
Transactions 13
Part IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 13
Signatures 15
Exhibit 11 18
Exhibit 13 19
Exhibit 21 20
Exhibit 23 21
Exhibit 27 22
Exhibit 99 23
i
FIRST KEYSTONE CORPORATION
FORM 10-K
PART I
ITEM 1. BUSINESS
Forward Looking Statements
__________________________
The management of First Keystone Corporation (the "Corporation")
has made forward-looking statements in this annual report on Form 10-K.
These forward-looking statements may be subject to risks and
uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of the
Corporation and its subsidiary, The First National Bank of Berwick
(the "Bank"). When words such as "believes," "expects," "anticipates"
or similar expressions occur in this annual report, management is
making forward-looking statements.
Shareholders should note that many factors, some of which are
discussed elsewhere in this annual report, could affect the future
financial results of the Corporation and its subsidiary, both
individually and collectively, and could cause those results to differ
materially from those expressed in the forward-looking statements
contained in this annual report on Form 10-K. These factors include
the following:
(Bullet) operating, legal and regulatory risks;
(Bullet) economic, political and competitive forces affecting
our banking, securities, asset management and credit
services businesses; and
(Bullet) the risk that our analyses of these risks and forces
could be incorrect and or that the strategies developed
to address them could be unsuccessful.
The Corporation undertakes no obligation to publicly revise or
update these forward-looking statements to reflect events or
circumstances that arise after the date of this report. Readers
should carefully review the risk factors described in other documents
that are filed periodically with the Securities and Exchange
Commission.
First Keystone Corporation is a Pennsylvania business
corporation, and a bank holding company, registered with and
supervised by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"). The Corporation was incorporated on
July 6, 1983, and commenced operations on July 2, 1984, upon
consummation of the acquisition of all of the outstanding stock of The
First National Bank of Berwick. Since commencing operations, the
Corporation's business has consisted primarily of managing and
supervising the Bank, and its principal source of income has been
dividends paid by the Bank. The Corporation has one wholly-owned
subsidiary, the Bank, which has a commercial banking operation and
trust department as its major lines of business. Greater than 90% of
the company's revenue and profit came from the commercial banking
department for the years ended December 31, 1999, 1998, and 1997. and
was the only reportable segment. At December 31, 1999, the
Corporation had total consolidated assets, deposits and stockholders'
equity of approximately $333.5 million, $244.7 million and $29.4
million, respectively.
The Bank was organized in 1864. The Bank is a national banking
association that is a member of the Federal Reserve System. Its
deposits are insured by the Federal Deposit Insurance Corporation (the
"FDIC") to the maximum extent of the law. The Bank, has nine branch
locations
1
(five branches within Columbia County, three branches within Luzerne
County, and one in Montour County, Pennsylvania), and is a full
service commercial bank providing a wide range of services to
individuals and small to medium sized businesses in its Northeastern
and Central Pennsylvania market area. The Bank's commercial banking
activities include accepting time, demand, and savings deposits and
making secured and unsecured commercial, real estate and consumer
loans. Additionally, the Bank also provides personal and corporate
trust and agency services to individuals, corporations, and others,
including trust investment accounts, investment advisory services,
mutual funds, estate planning, and management of pension and profit
sharing plans.
Supervision and Regulation
__________________________
The Corporation is subject to the jurisdiction of the Securities
and Exchange Commission ("SEC") and of state securities laws for
matters relating to the offering and sale of its securities. The
Corporation is currently subject to the SEC's rules and regulations
relating to company's whose shares are registered under Section 12 of
the Securities Exchange Act of 1934, as amended.
The Corporation is also subject to the provisions of the Bank
Holding Company Act of 1956, as amended ("Bank Holding Company Act"),
and to supervision by the Federal Reserve Board. The Bank Holding
Company Act requires the Corporation to secure the prior approval of
the Federal Reserve Board before it owns or controls, directly or
indirectly, more than 5% of the voting shares of substantially all of
the assets of any institution, including another bank.
The Bank Holding Company Act also prohibits acquisitions of
control of a bank holding company, such as the Corporation, without
prior notice to the Federal Reserve Board. Control is defined for
this purpose as the power, directly or indirectly, to direct the
management or policies of a bank holding company or to vote twenty-five
percent (25%) (or ten percent (10%), if no other person or
persons acting on concert, holds a greater percentage of the Common
Stock) or more of the Corporation's Common Stock.
The Corporation is required to file an annual report with the
Federal Reserve Board and any additional information that the Federal
Reserve Board may require pursuant to the Bank Holding Company Act.
The Federal Reserve Board may also make examinations of the
Corporation and any or all of its subsidiaries.
The Bank is subject to federal and state statutes applicable to
banks chartered under the banking laws of the United States, to
members of the Federal Reserve System and to banks whose deposits are
insured by the FDIC. Bank operations are also subject to regulations
of the Office of the Comptroller of the Currency (the "OCC"), the
Federal Reserve Board and the FDIC.
The primary supervisory authority of the Bank is the OCC, which
regulates and examines the Bank. The OCC has the authority under the
Financial Institutions Supervisory Act to prevent a national bank from
engaging in an unsafe or unsound practice in conducting its business.
Federal and state banking laws and regulations govern, among
other things, the scope of a bank's business, the investments a bank
may make, the reserves against deposits a bank must maintain, loans a
bank makes and collateral it takes, and the activities of a bank with
respect to mergers and consolidations and the establishment of
branches.
As a subsidiary of a bank holding company, the Bank is subject to
certain restrictions imposed by the Federal Reserve Act on any
extensions of credit to the bank holding company or its subsidiaries,
on investments in the stock or other securities of the bank holding
company or its subsidiaries and on taking such stock or securities as
collateral for loans. The Federal Reserve Act
2
and Federal Reserve Board regulations also place certain limitations
and reporting requirements on extensions of credit by a bank to
principal shareholders of its parent holding company, among others,
and to related interests of such principal shareholders. In addition,
such legislation and regulations may affect the terms upon which any
person becoming a principal shareholder of a holding company may
obtain credit from banks with which the subsidiary bank maintains a
correspondent relationship.
Under the Federal Deposit Insurance Act ("FDIA"), the OCC
possesses the power to prohibit institutions regulated by it (such as
the Bank) from engaging in any activity that would be an unsafe or
unsound banking practice or would otherwise be in violation of the
law.
Permitted Non-Banking Activities
________________________________
The Federal Reserve Board permits bank holding companies to
engage in non-banking activities so closely related to banking,
managing or controlling banks as to be a proper incident thereto. The
Corporation does not at this time engage in any of these non-banking
activities, nor does the Corporation have any current plans to engage
in any other permissible activities in the foreseeable future.
Legislation and Regulatory Changes
__________________________________
From time to time, various types of federal and state legislation
have been proposed that could result in additional regulations of, and
restrictions on, the business of the Bank. It cannot be predicted
whether any such legislation will be adopted or how such legislation
would affect the business of the Bank. As a consequence of the
extensive regulation of commercial banking activities in the United
States, the Bank's business is particularly susceptible to being
affected by federal legislation and regulations that may increase the
costs of doing business.
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding
permissible activities or affecting the competitive balance between
banks and other financial institutions. No prediction can be made as
to the likelihood of any major changes or the impact such changes
might have on the Corporation and its subsidiary bank. Certain
changes of potential significance to the Corporation which have been
enacted recently and others which are currently under consideration by
Congress or various regulatory agencies are discussed below.
Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA")
_____________________________________________________________
The Federal Deposit Insurance Corporation Improvement Act
("FDICIA") established five different levels of capitalization of
financial institutions, with "prompt corrective actions" and
significant operational restrictions imposed of institutions that are
capital deficient under the categories. The five categories are:
(Bullet) well capitalized
(Bullet) adequately capitalized
(Bullet) undercapitalized
(Bullet) significantly undercapitalized, and
(Bullet) critically undercapitalized.
To be considered well capitalized, an institution must have a
total risk-based capital ratio of at least 10%, a Tier 1 risk-based
capital ratio of at least 6%, a leverage capital ratio of 5%, and must
not be subject to any order or directive requiring the institution to
improve its capital level. An institution falls within the adequately
capitalized category if it has a total risk-based capital ratio of at
3
least 8%, a Tier 1 risk-based capital ratio of at least 4%, and a
leverage capital ratio of at least 4%. Institutions with lower
capital levels are deemed to be undercapitalized, significantly
undercapitalized or critically undercapitalized, depending on their
actual capital levels. In addition, the appropriate federal
regulatory agency may downgrade an institution to the next lower
capital category upon a determination that the institution is in an
unsafe or unsound condition, or is engaged in an unsafe or unsound
practice. Institutions are required under FDICIA to closely monitor
their capital levels and to notify their appropriate regulatory agency
of any basis for a change in capital category. On December 31, 1999,
the Corporation and the Bank exceeded the minimum capital levels of
the well capitalized category.
Regulatory oversight of an institution becomes more stringent
with each lower capital category, with certain "prompt corrective
actions" imposed depending on the level of capital deficiency.
Other Provisions of FDICIA
__________________________
Each depository institution must submit audited financial
statements to its primary regulator and the FDIC, which reports are
made publicly available. In addition, the audit committee of each
depository institution must consist of outside directors and the audit
committee at "large institutions" (as defined by FDIC regulation) must
include members with banking or financial management expertise. The
audit committee at "large institutions" must also have access to
independent outside counsel. In addition, an institution must notify
the FDIC and the institution's primary regulator of any change in the
institutions independent auditor, and annual management letters must
be provided to the FDIC and the depository institution's primary
regulator. The regulations define a "large institution" as one with
over $500 million in assets, which does not include the Bank. Also,
under the rule, an institution's independent auditor must examine the
institution's internal controls over financial reporting and perform
agreed-upon procedures to test compliance with laws and regulations
concerning safety and soundness.
Under FDICIA, each federal banking agency must prescribe certain
safety and soundness standards for depository institutions and their
holding companies. Three types of standards must be prescribed:
(Bullet) asset quality and earnings
(Bullet) operational and managerial, and
(Bullet) compensation
Such standards would include a ratio of classified assets to capital,
minimum earnings, and, to the extent feasible, a minimum ratio of
market value to book value for publicly traded securities of such
institutions and holding companies. Operational and managerial
standards must relate to:
(Bullet) internal controls, information systems and internal
audit systems
(Bullet) loan documentation
(Bullet) credit underwriting
(Bullet) interest rate exposure
(Bullet) asset growth, and
(Bullet) compensation, fees and benefits
FDICIA also sets forth Truth in Savings disclosure and
advertising requirements applicable to all depository institutions.
4
Real Estate Lending Standards. Pursuant to the FDICIA, the OCC
and other federal banking agencies adopted real estate lending
guidelines which would set loan-to-value ("LTV") ratios for different
types of real estate loans. A LTV ratio is generally defined as the
total loan amount divided by the appraised value of the property at
the time the loan is originated. If the institution does not hold a
first lien position, the total loan amount would be combined with the
amount of all senior liens when calculating the ratio. In addition to
establishing the LTV ratios, the guidelines require all real estate
loans to be based upon proper loan documentation and a recent
appraisal of the property.
Regulatory Capital Requirements
_______________________________
The federal banking regulators have adopted certain risk-based
capital guidelines to assist in the assessment of the capital adequacy
of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of
credit, and recourse agreements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets
and credit equivalent amounts of off balance sheet items are
multiplied by one of several risk adjustment percentages, which range
from 0% for assets with low credit risk, such as certain U.S. Treasury
securities, to 100% for assets with relatively high credit risk, such
as business loans.
The following table presents the Corporation's capital ratios at
December 31, 1999:
(In Thousands)
Tier I Capital $ 31,604
Tier II Capital 2,326
Total Capital 33,930
Adjusted Total Average Assets 325,407
Total Adjusted Risk-Weighted Assets 185,813
Tier I Risk-Based Capital Ratio 17.01%
Required Tier I Risk-Based Capital Ratio 4.00%
Excess Tier I Risk-Based Capital Ratio 13.01%
Total Risk-Based Capital Ratio 18.25%
Required Total Risk-Based Capital Ratio 8.00%
Excess Total Risk-Based Capital Ratio 10.25%
Tier I Leverage Ratio 9.71%
Required Tier I Leverage Ratio 4.00%
Excess Tier I Leverage Ratio 5.71%
______________________________
Includes off-balance sheet items at credit-equivalent values less
intangible assets.
Tier I Risk-Based Capital Ratio is defined as the ratio of Tier I
Capital to Total Adjusted Risk-Weighted Assets.
Total Risk-Based Capital Ratio is defined as the ratio of Tier I and
Tier II Capital to Total Adjusted Risk-Weighted Assets.
Tier I Leverage Ratio is defined as the ratio of Tier I Capital to
Adjusted Total Average Assets.
5
The Corporation's ability to maintain the required levels of
capital is substantially dependent upon the success of Corporation's
capital and business plans; the impact of future economic events on
the Corporation's loan customers; and the Corporation's ability to
manage its interest rate risk and investment portfolio and control its
growth and other operating expenses. See also, the information under
the caption "Capital Strength" appearing on page 37 of Registrant's
1999 Annual Report, included in Exhibit 13.
Effect of Government Monetary Policies
______________________________________
The earnings of the Corporation are and will be affected by
domestic economic conditions and the monetary and fiscal policies of
the United States government and its agencies.
The monetary policies of the Federal Reserve Board have had, and
will likely continue to have, an important impact on the operating
results of commercial banks through its power to implement national
monetary policy in order to, among other things, curb inflation or
combat a recession. The Federal Reserve Board has a major effect upon
the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through
its regulations of, among other things, the discount rate on
borrowings of member banks and the reserve requirements against member
bank deposits. It is not possible to predict the nature and impact of
future changes in monetary and fiscal policies.
Effects of Inflation
____________________
Inflation has some impact on the Bank's operating costs. Unlike
industrial companies, however, substantially all of the Bank's assets
and liabilities are monetary in nature. As a result, interest rates
have a more significant impact on the Bank's performance than the
general levels of inflation. Over short periods of time, interest
rates may not necessarily move in the same direction or in the same
magnitude as prices of goods and services.
Environmental Regulation
________________________
There are several federal and state statutes that regulate the
obligations and liabilities of financial institutions pertaining to
environmental issues. In addition to the potential for attachment of
liability resulting from its own actions, a bank may be held liable,
under certain circumstances, for the actions of its borrowers, or
third parties, when such actions result in environmental problems on
properties that collateralize loans held by the bank. Further, the
liability has the potential to far exceed the original amount of the
loan issued by the Bank. Currently, neither the Corporation nor the
Bank is a party to any pending legal proceeding pursuant to any
environmental statute, nor are the Corporation and the Bank aware of
any circumstances that may give rise to liability under any such
statute.
Interest Rate Risk
__________________
Federal banking agency regulations specify that the bank's
capital adequacy include an assessment of the bank's interest rate
risk ("IRR") exposure. The standards for measuring the adequacy and
effectiveness of a banking organization's IRR management includes a
measurement of Board of Directors and senior management oversight, and
a determination of whether a banking organization's procedures for
comprehensive risk management are appropriate to the circumstances of
the specific banking organization. The First National Bank of Berwick
has internal IRR models that are used to measure and monitor IRR.
Additionally, the regulatory agencies have been assessing IRR
6
on an informal basis for several years. For these reasons, the
Corporation does not expect the addition of IRR evaluation to the
agencies' capital guidelines to result in significant changes in
capital requirements for The First National Bank of Berwick.
Gramm-Leach-Bliley
__________________
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999, which is also known as the Financial
Services Modernization Act. The act repeals some Depression-era
banking laws and will permit banks, insurance companies and securities
firms to engage in each others' businesses after complying with
certain conditions and regulations which are yet to be finalized. The
act grants to community banks the power to enter new financial markets
as a matter of right that larger institutions have managed to do on an
ad hoc basis. At this time, our company has no plans to pursue these
additional possibilities.
Our company does not believe that the Financial Services
Modernization Act will have an immediate positive or negative material
effect on our operations. However, the act may have the result of
increasing the amount of competition that our company faces from
larger financial service companies, many of whom have substantially
more financial resources than our company, which may now offer banking
services in addition to insurance and brokerage services.
History and Business - Bank
___________________________
The Bank's legal headquarters are located at 111 West Front
Street, Berwick, Pennsylvania.
As of December 31, 1999, the Bank had total assets of
$333,515,787, total shareholders' equity of $29,357,519 and total
deposits and other liabilities of $304,158,268.
The Bank engages in a full-service commercial banking business,
including accepting time and demand deposits, and making secured and
unsecured commercial and consumer loans. The Bank's business is not
seasonal in nature. Its deposits are insured by the FDIC to the
extent provided by law. The First National Bank of Berwick has no
foreign loans or highly leveraged transaction loans, as defined by the
Federal Reserve Board. Substantially all of the loans in The First
National Bank of Berwick's portfolio have been originated by The First
National Bank of Berwick. Policies adopted by the Board of Directors
are the basis by which The First National Bank of Berwick conducts its
lending activities.
At December 31, 1999, the Bank had 110 full-time employees and 24
part-time employees. In the opinion of management, the Bank enjoys a
satisfactory relationship with its employees. The Bank is not a party
to any collective bargaining agreement.
Competition - Bank
__________________
The Bank competes actively with other area commercial banks and
savings and loan associations, many of which are larger than the Bank,
as well as with major regional banking and financial institutions.
The Bank's major competitors in Columbia and Luzerne counties are:
(Bullet) First Columbia Bank & Trust Co. of Bloomsburg
(Bullet) PNC Bank, N.A.
(Bullet) Columbia County Farmers National Bank of Bloomsburg
(Bullet) M & T Bank
(Bullet) FNB Bank of Danville, and
(Bullet) First National Trust Bank of Sunbury
7
In the county of Montour, credit unions are our major competitors
along with Northern Central Bank, FNB Bank of Danville and Omega Bank.
The Bank is generally competitive with all competing financial
institutions in its service area with respect to interest rates paid
on time and savings deposits, service charges on deposit accounts and
interest rates charged on loans.
Concentration
_____________
The Corporation and the Bank are not dependent for deposits nor
exposed by loan concentrations to a single customer or to a small
group of customers the loss of any one or more of whom would have a
materially adverse effect on the financial condition of the
Corporation or the Bank.
ITEM 2. DESCRIPTION OF PROPERTIES
The Corporation owns no property other than through its
subsidiary. These are:
Type of Square
Location Ownership Footage Use
________ _________ _______ ___
Columbia County, PA
111 W. Front Street,
Berwick Owned 12,500 Administrative
office, banking and
trust services.
105 Market Street Leased 4,000 computer/
(second floor) Annual accounting
Rental department.
$32,137
2nd & Market Streets, Owned Land Area No buildings,
Berwick 1.45 Acres held for possible
expansion
Present use,
parking.
701 Freas Avenue,
Berwick Owned 3,744 Banking services.
50 Briar Creek Plaza Leased 500 Banking services.
Annual
Rental
$30,000
8
Type of Square
Location Ownership Footage Use
________ _________ _______ ___
Columbia County, PA
2401 New Berwick
Highway, Bloomsburg Leased 2,000 Banking services.
Annual
Rental
$35,325
U.S. Route 11 & Owned Land Area No buildings,
Central Road, 1.11 Acres held for expansion.
Bloomsburg Present use,
rental.
Third & Race Streets, Owned 2,500 Banking services.
Mifflinville
Luzerne County, PA
Salem Township Owned 3,700 Banking services.
Post Office Address -
400 Fowler Avenue,
Berwick
West Third Street, Leased 2,300 Banking services.
Nescopeck Annual
Rental
$8,400
1540 Sans Souci Highway Owned 4,000 Banking services.
Wilkes-Barre
Montour County, PA
Giant Market Leased 500 Banking services.
328 Church Street Annual
Danville Rental
$25,000
It is Management's opinion that the facilities currently utilized
are suitable and adequate for the Corporation's current and immediate
future purposes.
9
ITEM 3. LEGAL PROCEEDINGS
The Corporation and/or the Bank are defendants in various legal
proceedings arising in the ordinary course of their business.
However, in the opinion of management of the Corporation and the Bank,
there are no proceedings pending to which the Corporation and the Bank
is a party or to which their property is subject, which, if determined
adversely to the Corporation and the Bank, would be material in
relation to the Corporation's and Bank's individual profits or
financial condition, nor are there any proceedings pending other than
ordinary routine litigation incident to the business of the
Corporation and the Bank. In addition, no material proceedings are
pending or are known to be threatened or contemplated against the
Corporation and the Bank by government authorities or others.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Corporation's Common Stock is traded in the over-the-counter
market on the OTC Bulletin Board under the symbol "FKYS". The
following table sets forth:
(Bullet) the quarterly high and low prices for a share of the
Corporation's Common Stock during the periods indicated
as reported to the management of the Corporation and
(Bullet) quarterly dividends on a share of the Common Stock with
respect to each quarter since January 1, 1998.
The following quotations represent prices between buyers and sellers
and do not include retail markup, markdown or commission, and may not
necessarily reflect actual transactions.
Stock Prices Dividends
High Low Declared
1998:
First quarter $30.25 $19.08 $.14
Second quarter $32.50 $29.50 $.14
Third quarter $36.13 $32.00 $.14
Fourth quarter $34.38 $32.50 $.17
1999:
First quarter $33.50 $20.00 $.17
Second quarter $30.25 $28.50 $.17
Third quarter $29.00 $26.25 $.17
Fourth quarter $26.25 $20.25 $.19
As of December 31, 1999, the Corporation had approximately 547
shareholders of record.
10
The Corporation has paid dividends since commencement of business
in 1984. It is the present intention of the Corporation's Board of
Directors to continue the dividend payment policy; however, further
dividends must necessarily depend upon earnings, financial condition,
appropriate legal restrictions and other factors relevant at the time
the Board of Directors of the Corporation considers dividend policy.
Cash available for dividend distributions to shareholders of the
Corporation must initially come from dividends paid by the Bank to the
Corporation. Therefore, the restrictions on the Bank's dividend
payments are directly applicable to the Corporation.
Dividend Restrictions on the Bank
_________________________________
The OCC rules govern the payment of dividends by national banks.
Consequently, the Bank, which is subject to these rules, may not pay
dividends from capital (unimpaired common and preferred stock
outstanding) but only from retained earnings after deducting losses
and bad debts therefrom. To the extent that (1) the Bank has capital
surplus in an amount in excess of common capital and (2) the Bank can
prove that such surplus resulted from prior period earnings, the Bank,
upon approval of the OCC, may transfer earned surplus to retained
earnings and thereby increase its dividend capacity.
The Bank may not pay any dividends on its capital stock during a
period in which it may be in default in the payment of its assessment
for a deposit insurance premium due to the FDIC, nor may it pay
dividends on Common Stock until any cumulative dividends on the Bank's
preferred stock (if any) have been paid in full. The Bank has never
been in default in the payments of its assessments to the FDIC; and
the Bank has no outstanding preferred stock. In addition, under the
Federal Deposit Insurance Act (912 U.S.C. Section 1818), dividends
cannot be declared and paid if the OCC obtains a cease and desist
order because, in the opinion of the OCC, such payment would
constitute an unsafe and unsound banking practice. As of December 31,
1999, there was $3,320,652 in unrestricted retained earnings and net
income available at the Bank that could be paid as a dividend to the
Corporation under the current OCC regulations.
Dividend Restrictions on the Corporation
________________________________________
Under the Pennsylvania Business Corporation Law of 1988, as
amended (the "BCL"), the Corporation may not pay a dividend if, after
giving effect thereto, either (a) the Corporation would be unable to
pay its debts as they become due in the usual course of business or
(b) the Corporation's total assets would be less than its total
liabilities. The determination of total assets and liabilities may be
based upon: (i) financial statements prepared on the basis of
generally accepted accounting principles, (ii) financial statements
that are prepared on the basis of other accounting practices and
principles that are reasonable under the circumstances, or (iii) a
fair valuation or other method that is reasonable under the
circumstances.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Summary of Selected Financial
Data" appearing on page 2 of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1999, which page is
included in Exhibit 11 hereto, is incorporated in its entirety by
reference in response to this Item 6.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing
on pages 27 through 42 of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1999, which pages are
included in Exhibit 13 hereto, is incorporated in its entirety by
reference in response to this Item 7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information under the caption "Quantitative and Qualitative
Disclosure about Market Risk" appearing on page 38 through 40 of the
Corporation's Annual Report to Shareholders for the year ended
December 31, 1999, which pages are included in Exhibit 13 hereto, is
incorporated in its entirety by reference in response to this Item 7A.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's Consolidated Financial Statements and notes
thereto appearing on pages 4 through 24 of the Corporation's Annual
Report to Shareholders for the year ended December 31, 1999, which
pages are included in Exhibit 13 hereto, are incorporated in their
entirety by reference in response to this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the captions "Information As To Nominees
and Directors," "Section 16(A) Beneficial Ownership Reporting
Compliance," "Principal Officers of the Corporation," and "Principal
Officers of the Bank" appearing on pages 7, 8, 9, 16, and 17,
respectively in the Corporation's Definitive Proxy Statement, filed at
Exhibit 99 hereto, are incorporated in their entirety by reference in
response to this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation"
appearing on pages 11 through 14 of the Corporation's Definitive Proxy
Statement, filed as Exhibit 99 hereto, is incorporated in its entirety
by reference in response to this Item 11.
12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information under the caption "Principal Beneficial Owners of
the Corporation's Stock" appearing on pages 3 through 6 of the
Corporation's Definitive Proxy Statement, filed as Exhibit 99 hereto,
is incorporated in its entirety by reference in response to this Item
12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Relationships and
Related Transactions" appearing on page 15 of the Corporation's
Definitive Proxy Statement, filed as Exhibit 99 hereto, is
incorporated in its entirety by reference in response to this Item 13.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. The Registrant's consolidated financial statements
and notes thereto as well as the applicable reports of the independent
certified public accountants are filed at Exhibit 13 hereto and are
incorporated in their entirety by reference under this Item 14(a)1.
2. All schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
3. The exhibits required by Item 601 of the Regulation S-K are
included under Item 14(c) hereto.
(b) The Corporation filed no reports on Form 8-K during the last
quarter of the year ended December 31, 1999.
(c) Exhibits required by Item 601 of Regulation S:
13
Exhibit Number Referred to
Item 601 of Regulation S-K Description of Exhibit
2 None.
3i Articles of Incorporation, as
amended (Incorporated by reference
to Exhibit 3(i) to the
Registrant's Annual Report on Form
10-KSB for the year ended December
31, 1996).
3ii By-Laws, as amended (Incorporated
by reference to Exhibit 3(ii) to
the Registrant's Annual Report on
Form 10-KSB for the year ended
December 31, 1996).
4 Articles of Incorporation, as
amended, and By-Laws, as amended
(Incorporated by reference to
Exhibit 3(i) to the Registrant's
Annual Report on Form 10-KSB for
the year ended December 31, 1996).
9 None.
Exhibit Number Referred to
Item 601 of Regulation S-K Description of Exhibit
11 Computation of Earnings Per Share
incorporated by reference to
Exhibit 11 to the Registrant's
Annual Report on Form 10-K for the
year ended December 31, 1999.
12 Statement of Computation of Ratios
(See the information appearing on
page 2 of Registrant's Summary of
Selected Financial Data, which
page is included in Exhibit 11 and
pages 27 and 37 of Registrant's
1999 Annual Report, which pages
are included in Exhibit 13.)
13 Excerpt from Annual Report to
Shareholders for Fiscal Year Ended
December 31, 1999.
21 List of Subsidiaries of the
Corporation (Incorporated by
reference to Exhibit 22 to the
Registrant's Annual Report on Form
10-K for the year ended December
31, 1999.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
99 Definitive Proxy Statement, Notice
of Annual Meeting and Form of
Proxy for the Annual Meeting of
Shareholders to be held April 18,
2000.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST KEYSTONE CORPORATION
(Registrant)
By: /s/ J. Gerald Bazewicz
J. Gerald Bazewicz
President and Chief Executive Officer
Date: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
By: /s/ John L. Coates
John L. Coates
Secretary and Director
Date: March 28, 2000
By: /s/ J. Gerald Bazewicz
J. Gerald Bazewicz
President, Chief Executive
Officer and Director
(Chief Executive Officer
and Principal Financial Officer)
Date: March 28, 2000
15
By: /s/ John E. Arndt
John E. Arndt
Director
Date: March 28, 2000
By: /s/ Budd L. Beyer
Budd L. Beyer
Director
Date: March 28, 2000
By: /s/ Robert E. Bull
Robert E. Bull
Chairman of the Board
and Director
Date: March 28, 2000
By: /s/ Dudley P. Cooley
Dudley P. Cooley
Director
Date: March 28, 2000
By: /s/ Frederick E. Crispin, Jr.
Frederick E. Crispin, Jr.
Director
Date: March 28, 2000
By: /s/ Jerome F. Fabian
Jerome F. Fabian
Director
Date: March 28, 2000
16
By:
Stanley E. Oberrender
Director
Date:
By: /s/ David R. Saracino
David R. Saracino
Treasurer and Assistant Secretary
(Principal Accounting Officer)
Date: March 28, 2000
By: /s/ Robert J. Wise
Robert J. Wise
Vice Chairman of the Board
and Director
Date: March 28, 2000
17